Changing the Power Grid for the Better

CHANGING THE POWER GRID FOR THE BETTER

Diverse, Flexible Resources Are Key to Reducing Costs and Enhancing Reliability in Today’s Electric Power System

By Advanced Energy Economy Institute

May 2017

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About the Advanced Energy Economy Institute

The Advanced Energy Economy Institute (AEE Institute) is a 501 (c)(3) charitable organization whose mission is to raise awareness of the public benefits and opportunities of advanced energy. AEE Institute provides critical data to drive the policy discussion on key issues through commissioned research and reports, data aggregation and analytic tools. AEE Institute also provides a forum where leaders can address energy challenges and opportunities facing the United States. AEE Institute is affiliated with Advanced Energy Economy (AEE), a 501(c)(6business association, whose purpose to advance and promote the common business interests of its members and the advanced energy industry as a whole. www.aee.net/aeei

EXECUTIVE SUMMARY

A successful transition to a more diverse energy resource mix has been underway for at least a decade. Ten years ago, nearly half of U.S. electricity was produced by a single resource: coal. Today, coal and natural gas each supply about one third of our electricity, nuclear one fifth, and hydro and non-hydro renewables another one fifth. Greater fuel diversity has provided us with more options to meet our energy needs while maintaining, if not improving, reliability.

Despite the real-world examples of greater fuel diversity improving reliability, there are concerns that a shift away from coal and nuclear, so-called “baseload” resources, and toward more flexible natural gas, demand-side resources, and renewable energy threatens to undermine reliability. While there is a place for all resources, including baseload, in our current energy mix, these concerns stem from a misunderstanding of how the grid works today. More importantly, these concerns fail to recognize the ways that new technologies and services are helping us keep the lights on every moment of every day.

This paper sheds light on what is driving our changing resource mix and how it is improving reliability and lowering costs for businesses and consumers. Specifically, it shows that:

The transition to a more diverse resource mix is driven primarily by consistently low natural gas prices, followed in order of significance by flat electricity demand and competition from renewables.

With operational techniques and technologies currently available and in widespread use today, the grid can continue to reliably integrate much higher levels of natural gas, variable renewables, and demand-side re-sources.

These changes will improve – not undermine – the reliability and resilience of the electric power system, as demonstrated by extreme weather events. During the 2014 Polar Vortex, extreme cold caused onsite coal piles to freeze, power plant control equipment to fail, and natural gas pipelines to become constrained. But grid operators were able to turn to demand-side resources and wind energy to keep the lights on during the emergency.

This paper argues that incorporating more renewable energy, fast-ramping natural gas generation, a range of demand management techniques, and new resources like energy storage – rather than a return to a singular reliance on baseload resources – is the foundation of electric power system reliability. Better understanding of how these resources contribute to reliable grid operations will better enable policymakers to maximize the benefits they can provide.

TABLE OF CONTENTS

Introduction ...... 1 Changing Resource Mix is Driven by Competition, not Subsidies ...... 3 U.S. Generation Mix Has Become More Diverse ...... 3 Low Natural Gas Prices Are the Primary Driver of Changing Resource Mix ...... 4 Flat and Declining Load Growth Is Also a Major Factor ...... 5 Cost Declines Are Driving Renewable Deployment Today ...... 4 Low-cost, Flexible Resources Are the Future of the Electric Grid ...... 7 Grid Operators Increasingly Value Flexibility Over “Always On” Power ...... 7 Grid Operators Are Successfully Managing More Gas and Renewables ...... 8 With Current Grid Capabilities and Continued Innovation, There is No Physical Limit To the Reliable Renewables Integration ...... 9 Consumers Benefit from Resource Diversity ...... 10 Conclusion ...... 12 Notes ...... 13

INTRODUCTION

Access to affordable, reliable energy is relatively flat for some time and projections fundamental to modern life and commerce, as indicate that the situation is likely to continue consumers and businesses alike depend on for the foreseeable future. Together, these uninterrupted power, unrestricted mobility, changes in supply and demand economics are and constant connectivity. The increased need putting competitive pressure on aging and for reliability, the rising economic cost of relatively inflexible resources like some of the blackouts, and the need to replace ageing large coal and nuclear plants that are infrastructure can all be addressed through a sometimes referred to as “baseload re- more flexible and responsive energy system sources”. that draws on a variety of resources and provides consumers with more choices and Some people have raised questions about lower costs. Fortunately, the technologies whether the challenges facing some of these needed to build a modern, high-performing, baseload resources will create problems for and affordable energy system already exist, our energy system. As context, it is helpful to and bring with them huge opportunities for realize that the concept of baseload resources economic growth in the United States and is an accident of history and energy global leadership in energy innovation. economics. Baseload simply refers to the minimum system-wide demand for power that Electric power markets have changed exists around the clock (refrigeration, street dramatically in the last decade. These markets lighting, etc.). For a period of time, some of are more competitive today than ever before. the lowest-cost way to meet baseload demand Natural gas prices have fallen and are happened to be resources that had the projected to remain low for the foreseeable operational characteristic of performing best future. Meanwhile, renewables have when operated continuously – namely, coal experienced rapidly declining costs, which are and nuclear power. So, it made sense that also expected to continue, and have reached baseload demand would be met with price parity with other resources in some baseload resources that generated power regions. These changes in the supply side of continuously, while peaking resources, such as the industry have occurred during a period generators using (at the time) higher-cost that has also seen a rising demand for more natural gas fuel would be dispatched as flexible resources, greater fuel diversity, and demand increased over the course of the day. consumer choice and control. The deployment of highly cost-effective energy efficiency But that does not describe the mix of technologies, relatively slow pace of economic resources available today to meet electricity growth following the Great Recession, and loss demand, nor does it reflect today’s energy of some energy intensive industry in the economics. Baseload resources will United States has kept energy demand growth undoubtedly continue to play an important—

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and substantial—role in our energy mix. But become far more sophisticated, and are being natural gas is cheaper than coal, and natural used to manage the growing diversity of gas-fired electricity is cheaper than nuclear resources on the grid. Grid operators are now power. So generators using natural gas are routinely managing high levels of wind and more competitive in many parts of the country solar generation, sometimes exceeding 50% for meeting both baseload demand and of load, without compromising reliability, peaking demand. Meanwhile, wind and solar levels that would have been viewed as energy are not only competitive with more impossible just a few years ago. Second, traditional generation resources, their zero- energy demand, once viewed as inelastic, is fuel-cost character make them valuable becoming much more flexible and responsive hedges against fuel price volatility, and they to price and other market signals. With the are increasingly being deployed based purely ability to manage demand, rather than just on their economic value. matching supply to meet whatever level of demand occurs, it is now possible to take According to the North American Electric more dynamic control of both, which reduces Reliability Corporation (NERC), reliability in the costs and enhances reliability, while also bulk power system can be broadly separated giving customers more control over their own into two main categories: resource adequacy, energy use and costs s. or the availability of sufficient resources to meet demand at all times; and operating Modernizing the aging energy infrastructure reliability, or the ability of the electricity that has supported American prosperity for system to withstand disturbances ranging from decades and moving toward a more diverse storms to mechanical failures to voltage and dynamic energy system is the key to 1 disturbances. Given the operating maintaining a reliable grid in the future. It characteristics of baseload described above, it can also foster the competition and innovation is no surprise that concerns about the loss of that will drive down costs while meeting our baseload resources focus mainly on resource energy needs as they evolve. To date, this adequacy. However, all generation resources process has not only improved the overall contribute to ensuring resource adequacy as functioning of the grid but acted as an long as they are properly accounted for by economic engine as well. In 2016, advanced grid operators. energy was a $200 billion industry in the United States and employed more than 3 Two complementary developments provide million Americans. Allowing these resources to additional tools for enhancing grid reliability contribute to and compete in the U.S. energy and performance. First, grid management system has resulted in growth and prosperity, technologies and operational techniques have and will continue to do so going forward.

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CHANGING RESOURCE MIX IS DRIVEN BY COMPETITION, NOT SUBSIDIES

U.S. Generation Mix Has today. Renewables have also grown in the last decade, rising at a faster rate than gas but still Become More Diverse accounting for a significantly smaller share of the generation mix. Non-hydro renewable Over the past decade, the U.S. generation mix generation more than doubled from 3% in has changed substantially. In 2007, coal 2007 to 8% in 2016. Nuclear generation, which accounted for nearly half (49%) of total U.S. does not fluctuate significantly year-to-year in generation.2 Today it makes up less than 30%. the absence of major capacity additions or Natural gas supplanted coal as the largest retirements, has provided a fairly constant 20% source of electricity in the United States for the of U.S. generation for the last decade. The first time last year, rising from less than a result is a more diverse energy mix today than quarter (22%) of generation in 2007 to 34% ever before in U.S. history.

Generation Mix 2007 vs. 2016

Source: EIA

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At the same time, demand has been relatively prices, followed in order of importance by flat flat nationally, declining slightly from 4,150 electricity load growth and then competition TWh in 2007 to 4,080 TWh in 2016. In the from renewables.5 electric power sector, and especially the competitive wholesale energy markets, Driven by the abundance of domestic shale competition among generating sources has gas, natural gas prices have fallen from an become more intense.3 average price of $8.86/MMBtu in 2005 (and spiking above $12/MMBtu in two months of While national generation and demand data 2005 and one month of 2008) to an average of give us a sense of how today’s resource mix $3.20/MMBtu for the last five years.6 compares to that of the past, data on new capacity additions and planned retirements A March 13, 2016, report from Moody’s wrote tell us what utilities and investors see as the that natural gas prices have “by far…the most energy mix of tomorrow. For the past five dominant effect on the unregulated power years, over 80% of all new capacity additions sector,” especially as “gas-fired power plants annually have been renewables and natural often serve as the marginal plant during times 7 gas.4 There has been no notable addition of of peak power demand.” This is especially coal generating capacity since 2013. true in regions that do not have capacity markets, like Texas and the Midwest, where At the same time, retirements of coal-fired underutilized power plants are not getting power plants have accelerated, and some paid to ensure their availability to meet future nuclear units have retired or announced plans demand. to retire if the market for their resources does not become more favorable soon. Relatively The R Street Institute, a free market think tank, modest economic growth has been one factor, conducted a similar analysis, with a focus on 8 but below the surface, there is an important the nuclear industry. The study identified trend underway. The particular units in similar trends pressuring nuclear, coal, and question are some of the oldest resources on older natural gas-fired plants: flat demand the grid, with many having already recovered growth, competition from renewables, their capital costs from years of operation. As transmission challenges, post-Fukushima these resources retire, they are being replaced regulations to ensure safety, and uranium price with a diverse set of resources on both the spikes. Most importantly, the study found that supply side and demand side of the grid. low and stable natural gas prices “are setting new standards for what electricity should Low Natural Gas Prices Are cost.” the Primary Driver of These studies are backed up by anecdotal Changing Resource Mix evidence from announced coal plant retirements across the country. For example, These changes are driven by a number of the utility owners of the Navajo Generating factors, chief among them low natural gas Station in Arizona decided to close the plant

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“based on the rapidly changing economics of natural gas. Second, natural gas often sets the the energy industry, which has seen natural clearing price of electricity in wholesale power gas prices sink to record lows and become a markets. In these markets, the price of viable long-term and economical alternative to electricity is set by the marginal resource as coal power.”9 The reasons that natural gas grid operators dispatch power supply in prices have such a dominant impact on the economic merit from the cheapest to the most competitiveness of other resources are expensive, and that marginal resource is twofold. First, natural gas has the largest frequently natural gas. For example, in the market share of all the generating Midcontinent Independent System Operator technologies. With a large and growing share (MISO), the grid operator for most of the of U.S. capacity, low natural gas prices are Midwest region, natural gas set the price of encouraging grid operators to dispatch this electricity in the market 75% of the time while capacity at increasing rates, resulting in over coal set the price 23% of the time and wind one-third of U.S. generation coming from only 1%.10

Monthly Natural Gas Prices, 2006 – Present ($/Million Btu)

Source: EIA

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11 Flat and Declining Load use. As a result, total retail electricity sales fell by about 1% between 2010 and 2014 even Growth Is Also a Major Factor as the economy grew by 9% in real terms.12 As described above, demand for electricity has In PJM Interconnection, where over one fifth been flat or declining in most regions of the of U.S. GDP is produced annually, the country for at least the past decade. Economic relationship between load growth and growth is no longer synonymous with economic growth has been weakening since increased energy use. A shift away from 13 the end of World War II. Behind the meter energy-intensive industries like manufacturing, resources like combined heat and power vast improvements in the energy efficiency of (CHP), energy storage, and rooftop solar and buildings and devices, and the increased demand control resources like demand deployment of demand-side and behind-the- response and energy efficiency are meter resources have all helped to effectively contributing as well. decouple U.S. economic growth from energy

Annual Electricity Generation by Resource (TWh)

Source: EIA

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Flat load growth has created fewer have a similar effect on the demand curve as transmission constraints and pushed prices energy efficiency. They modify the net load down. Energy efficiency is often the least-cost shape that is “visible” to wholesale electricity option for meeting new and existing electricity markets, which has implications for the mix of needs and is already participating in electricity generating assets needed to meet demand. markets across the country PJM Several states have recognized the Interconnection operates a capacity market transformational effect that these resources based on auctions held three years in advance are having on the grid and have initiated of the time when the capacity is needed. In regulatory proceedings to facilitate greater one recent auction, a total of 12,314 adoption of behind the meter and distributed megawatts of demand response and energy- resources for the benefit of customers and the efficiency resources were committed as electric system as a whole. The most notable capacity resources for the 2017-2018 delivery of these include the Massachusetts Grid year, with over 99% of energy efficiency bids Modernization proceeding (DPU 12-76), New clearing the market.14 Similarly, in the ISO-New York State’s Reforming the Energy Vision England region, energy efficiency is being proceeding (Case 14-M-0101), and various officially forecast and incorporated into the proceedings in California, including the Regional System Plan, while growing amounts Distributed Resources Plan proceeding (R.14- of energy efficiency are clearing the market in 08-013). Minnesota has also initiated an each auction.15 investigatory proceeding into Grid Modernization (E999/CI-15-556). While the Energy efficiency’s cost-competitiveness has scope of these proceedings differ, they are all driven growth in energy performance-based in response to the evolving nature of the utility contracting services offered by Energy Service business model and the increasing complexity Companies (ESCOs). Analysts expect the $6 and interconnectedness of the electricity billion ESCO market to double in size by system. As consumers seek more control over 16 2020. Utility efficiency programs, which are their own energy use, this trend is likely to roughly equal in size to the ESCO market continue and accelerate. nationally, will also continue to grow due in part to Energy Efficiency Resource Standards Cost Declines Are Driving (EERS), which exist in nearly half of U.S. states. These trends will likely continue as innovations Renewable Deployment Today in technologies and services give customers Federal tax incentives and renewable portfolio greater control over their energy use and standards (RPS) in a majority of U.S. states are make energy efficiency even more cost- responsible for giving non-hydro renewable competitive with generation for meeting energy technologies, especially wind and solar electricity needs. power, their start in the U.S. electricity marketplace, and with many states raising their Behind the meter resources, which include targets for renewable energy, continue to distributed energy storage and rooftop solar,

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support development. But as these mostly wind. And the Lone Star State technologies have matured and reached scale, continues to add more wind every year their adoption is increasingly being driven by without the RPS as a driving force. In the cost. neighboring service territory of the Southwest Power Pool (SPP), a new record for wind The most basic indicator of power technology penetration was set last year when wind competitiveness is the levelized cost of energy generation, early one February morning, (LCOE), which measures the average cost of peaked at 52% of total output on the SPP electricity over the life of a project, including system.19 As grid operators grow more the costs of upfront capital, operations and accustomed to higher penetrations of maintenance, fuel, and financing. Lazard, an renewables, states are increasingly eyeing independent financial advisory and asset higher RPS policies without fear of cost or management firm, has tracked the operational impacts. unsubsidized LCOE of power technologies for the past decade.17 Lazard’s annual analyses Although wind and solar power receive tax show that, from 2008 to 2015, the credits to encourage their development, so do unsubsidized LCOE for utility-scale wind and most other resources on the grid. For the past solar power declined by 64% and 81%, 100 years, federal policy has supported the respectively. Those decreases have made resources necessary to meet U.S. energy renewable-energy technologies competitive needs, from the Revenue Act of 1913 (which with other power sources purely on the basis allows oil drillers to write off the cost of dry of cost. As a result, renewables are holes and depletion) to DOE-funded increasingly deployed purely on economic development of large-scale hydraulic grounds, without regard for subsidies or fracturing techniques in the 1970s.20,21 The U.S. mandates. Department of the Treasury identified 11 federal fossil fuel production tax provisions This is already evident in stateslike Texas and that cost the Treasury an estimated $4.7 billion Iowa, which have greatly exceeded their per year.22 Any new nuclear power plant put in renewable energy targets. As grid operators service today could benefit from a 2005 have become more sophisticated and production tax credit, which is now being experienced at managing a more diverse considered for extension,23 while existing portfolio of resources, including variable nuclear reactors were developed with other renewables, utilities are increasingly investing direct and indirect subsidies, such as federal in wind and solar purely on the basis of cost limits on liability for potential accidents.24 and as a hedge against fuel price volatility. In 1999, the Public Utility Commission of Texas The total cost of the wind and solar tax credits (PUCT) adopted an RPS that called for 10,000 is small compared to the similar support that MW of renewables by 2025.18 In 2009, Texas fossil fuels and nuclear power have received had already surpassed its 2025 target and over a much larger time frame.25 In contrast to installed over 13,000 MW of renewables, many of these policies, the Production Tax

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Credit (PTC), primarily supporting wind cause negative pricing. Nuclear and coal also development, and the Investment Tax Credit sometimes bid at negative prices because they (ITC), primarily supporting solar, have already find it more costly to reduce their output than begun to ramp down, or will by 2020. The to pay a customer to take it. Some coal power potential market impact of these tax benefits plants may also face penalties for failing to on wind and solar investment will be short- purchase a minimum amount of coal required lived, while any action to end these credits in their delivery contract. Hydro-electric prior to the scheduled phase-out would be resources also bid at negative prices from time disruptive to these industries, which DOE to time if, for example, they need to lower estimates currently support nearly a half water levels. million jobs between them.26 In the rare cases where wind and solar set the Critics of the ITC and PTC often point to the market clearing price, it is usually in remote phenomenon of negative pricing (when parts of the grid, where there are no other generators offer to pay customers to take their generators available, rather than because of energy) as evidence that they are distorting bidding price. This means that renewables’ the market. However, negative pricing events bidding prices also don’t impact the are extremely rare. In the Electric Reliability competitiveness of other resources in the Council of Texas (ERCOT), the grid operator same way as natural gas prices. For example, for most of Texas, market-wide average prices when wind set the clearing price in 2016 PJM were only negative in 0.64% of cases in 2015. Interconnection, the grid operator for the Mid- Of those, the vast majority were negative by Atlantic region, it only impacted prices by only a few dollars per megawatt hour.27 $0.05/MWh, or 0.2% (1/500th) of total prices.28 Wind and solar, which have low marginal For reasons outlined above, renewables operating costs, do impact market prices generally do not set the clearing price of indirectly because, when operating, they electricity. reduce the need for more costly generation from other. But with less than one-tenth of the Even if a renewable resource bids into the market share of natural gas, the impact is market at zero or negative prices, the clearing negligible in comparison. price is set by the marginal resource, which is most commonly natural gas. Moreover, renewables are not the only resources that

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LOW-COST, FLEXIBLE RESOURCES ARE THE FUTURE OF THE ELECTRIC GRID

Grid Operators Increasingly Baseload resources, like coal and nuclear, tend to have high fixed capital and operating and Value Flexibility Over “Always maintenance costs. Owners of baseload On” Power resources bring down their unit energy costs by running for extending periods of time. In Economic forces are causing the resource mix addition, baseload resources typically used to meet our electricity needs to shift from generate power with steam turbines, which capital-intensive, centralized baseload take many hours to turn on and off, do not resources that operate full-time to flexible ramp up and down easily, and are expensive resources that are currently lower cost, and to restart. The “always on” nature of baseload likely to remain so. This raises concerns in resources offered an element of reliability some quarters that replacing baseload when it was beneficial for the grid to have resources with variable renewable energy or some generators running continuously, but flexible natural gas will jeopardize the today it is simply is an operational reliability of the grid. But such concerns are characteristic like any other. stem from a misunderstanding of how the grid works today. In the past, grid operators could use these resources to meet baseload needs – the The operation of the grid requires moment-by- portion of demand that exists even in the moment management as well as forward- middle of the night – because running looking design and planning that looks many continuously helped to make them cheaper years into the future. While sudden, than other options. But when baseload unexpected events always create reliability resources like coal or nuclear are no longer the challenges, regardless of the resource mix, cheapest resources available, grid operators power plant retirements and the steady cease to use them to meet baseload demand growth of natural gas and renewables are – and as their utilization falls, their unit costs neither sudden nor unexpected. Grid rise, making them less competitive. That operators have been successfully managing leaves coal and nuclear power struggling to these changes for years, and can continue to compete. do so using technology and operating techniques widely available and already in use today.

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Grid Operators Are flexibility and low price impacts of new and existing gas generation. A report by The Successfully Managing More Brattle Group describes in detail how grid Gas and Renewables operators are doing this in two states, Texas and Colorado.31 ERCOT and Xcel Energy have Reducing reliance on baseload resources does both managed to integrate variable not mean that the grid is compromising renewables at 10% to 20% of total generation reliability. As the grid changes, system on average, and above 50% at times. planners and policymakers increasingly turn to flexible resources like natural gas generation, Texas is a good example of this trend in demand side management, smart grid, and action. Texas has more wind capacity than any 29 now storage, to maintain reliability. Even in other state and its grid is isolated, leaving it the case of wind and solar, variability does not unable to call on electricity from neighboring make such resources unreliable. To use an states to maintain reliability. ERCOT, which analogy to transportation, imagine that you operates the transmission system and have two choices to get to work in the competitive wholesale power markets for most morning: a bus, which is cheaper, or a taxi, of Texas, updates its six-hour wind forecast which is more expensive. The bus officially every 15 minutes to let operators know departs every 10 to 15 minutes, though it is whether they will need additional resources to sometimes delayed, while taxis can be hailed meet demand. ERCOT has also started to almost immediately. You, the commuter, can redesign its market to make use of flexible make the bus your first choice, to save money, resources like demand response and energy but if it is unexpectedly late, you can hail a cab storage, as part of its Future Ancillary Services and, though you pay more, will still get to (FAS) proposal.32 The creation of new reliability work on time. products in ERCOT will help the grid operator procure the capabilities it needs to maintain Grid operators do much the same thing. They reliability. use variable resources like wind and solar effectively by forecasting weather conditions, During the Polar Vortex, on January 6, 2014, with increasing sophistication and accuracy, freezing conditions caused multiple baseload but can also respond to unpredicted changes generators to trip offline, derate, or fail to by calling on fast-starting natural gas start, leading ERCOT to declare an emergency generators, demand response, and energy event and activate over 600 MW of emergency 30 storage to make sure demand is met. demand response for approximately one hour.33 In its official assessment of the event, Grid operators already have tools at their ERCOT noted that wind resources were not disposal to integrate variable renewables. affected and did not contribute to creating the Indeed, they have been reliably integrating emergency. Driven by advances in smart ever increasing levels of renewables over the meters, home energy managements systems, last two decades while maximizing the and smart appliances, more customers are

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able to participate in demand response not only of the levels of variable programs, increasing the ability of the grid to renewable capacity now in places like integrate renewables in non-emergency Texas and Colorado but even situations. significantly larger amounts in the future. Colorado has also successfully integrated high levels of variable renewables. Xcel has a peak Numerous studies show that greater levels are load of 6,700 MW and an off-peak load of possible with technologies commercially about 2,700 MW. With 2,600 MW of wind available and in widespread use today. In generation, Xcel’s service territory could 2012, NREL examined how much of U.S. potentially be served by nearly all wind energy needs could be met with renewable generation at times of low demand, which energy technology available at the time and often correspond to high winds. Xcel has found that by 2050, 80% of U.S. electricity developed an advanced weather forecasting needs could be met by variable renewables, in system with the National Center for combination with a more flexible grid, in every 34, 35 Atmospheric Research to improve wind region of the country. Subsequent analysis 36 forecasts by 35%. Over time, Xcel has by NREL has drawn similar conclusions. A improved its integration by also tadding more recent review of the available literature found gas-fired generation, increasing its storage that renewables “can supply, on an hourly capacity, and installing automatic generation basis, a majority of a country’s or region’s 37 control systems. electricity demand.” GE’s Energy Consulting Group has conducted multiple studies on With Current Grid Capabilities potential renewable penetration in North America. Last year, it released an interactive and Continued Innovation, web tool that consolidates some of these There is No Physical Limit To studies and shows that “there is not a hard the Reliable Renewables limit” to the level of renewables that could be deployed on the grid.38 Integration In addition to the examples of ERCOT and On top of these case studies, The Brattle Xcel energy cited above, California Group also found that operational techniques Independent System Operator (CAISO) is also and renewable energy technology itself will exploring ways to enhance its grid’s flexibility allow the integration of even higher as it significantly expands the renewable penetrations of renewables in coming years: penetration on its grid to 50% by 2030.39 As Ongoing technological progress and technology such as energy storage improves ongoing learning about how to and costs further decline, it will be even manage the operations of the electric cheaper and easier to manage these system will likely allow the integration resources.

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CONSUMERS BENEFIT FROM RESOURCE DIVERSITY

Today’s electric power grid is served by a America is blessed with an abundance of changing mix of resources, which provides energy resources – both natural and benefits in multiple ways. Ten years ago, technological. A well-balanced mix of flexible nearly half of U.S. power generation was and renewable resources, including natural supplied by a single resource: coal. Today, gas, biomass, solar, wind, geothermal, coal and natural gas each supply about one hydropower, and other distributed resources third of our electric power, nuclear one fifth, like fuel cells, can work with traditional and hydro and non-hydro renewables another resources to provide electricity that is both one fifth. This greater fuel diversity gives us low-cost and reliable. Advanced grid more options for meeting electric power technologies are helping to integrate variable needs, increases competition, and drives generation, increasing the output from these down prices. resources and amplifying their contribution to resource adequacy, and providing the grid It has also improved reliability and resilience, with a number of other operational benefits. as demonstrated by recent winter storms. These technologies include energy storage, During the 2014 Polar Vortex, the extreme advanced metering infrastructure, demand cold caused a winter-record demand for response, distribution automation, microgrids, electricity while also contributing to the failure high voltage direct current transmission, and of 22% of the generation in PJM smart grid management technologies.42 Interconnection. NERC conducted an Meanwhile, demand-side management assessment of the Polar Vortex event and technologies, such as energy efficiency and found that, of unplanned power plant outages, demand response, reduce peak demand, thus coal plants accounted for 26% and natural gas lowering necessary reserve capacity and 55% of the total. Outages due to extreme cold improving resource adequacy. Lawrence were caused by the freezing of on-site fuel Berkley National Laboratory (LBNL) cites load supplies like coal piles, frozen control and shifting, energy efficiency, and renewable sensor equipment, and the inability to receive energy as viable strategies to improve overall fuel from outside providers due to natural gas grid reliability without adding more generating 40,41 pipelines constraints. Facing this situation, capacity that is used only at times of peak grid operators were able to turn to demand demand.43 response and wind energy were able to meet the electric power needs of PJM even when The contribution of renewables themselves to baseload resources failed. reliability is growing every year. Voltage must remain within a stable range, and variations in

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voltage are monitored on very short timescales services, often on timescales much faster than to ensure the continued reliability of the grid. conventional generation.47 Earlier this year, in Transmission operators have experience in California, CAISO, First Solar, and NREL maintaining voltage support, even in states conducted a series of tests on a 300 MW solar with high levels of renewable generation. They PV facility to see if it could provide ancillary utilize voltage support not only from coal services as well as natural gas peaker plant.48 generating units, but also from gas turbines, The tests determined that, in every category of energy storage, variable frequency drives,44 ancillary service, the solar plant performed as solar PV with smart inverters,45 and newer well or better than a conventional resource. (Type 3 and 4) wind turbines.46 With the continued retirement of inefficient older Rather than create reliability concerns, wind generating units, these widely-available power and other advanced energy advanced energy technologies can be technologies can actually improve both deployed to provide voltage support and resource adequacy and operating reliability. ensure continued grid reliability. This argues for continued change in power system resources – incorporating more The role of advanced energy such as wind renewable energy, fast-ramping natural gas turbines in maintaining grid reliability will only generation, demand management techniques, increase with technological and operational and new resources like energy storage – rather improvements. The National Renewable than a return to baseload resources as the Energy Laboratory (NREL) found that, with the foundation of electric power system reliability. proper equipment and incentives, wind power can provide important power system control

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CONCLUSION

Driven by low and stable natural gas prices, flat electricity demand, and falling renewable costs – in that order – the electric power system in the United States is undergoing a dramatic change. But with the advent of a more flexible, fuel diverse, and dynamic energy system, consumers and businesses are poised to reap the benefits. We have already seen new resources like wind and demand response perform under emergency conditions like the 2014 Polar Vortex. These resources kept the lights on when traditional baseload generation failed. We have also seen states like Colorado and Texas reliably integrate levels of renewable energy that would have been unimaginable 10 years ago. And we have seen that, with technologies and operating techniques available today, there is no physical limit to how much more flexible the grid can become. With all the benefits that come with a more flexible, fuel diverse, and dynamic energy system, these changes should be embraced.

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NOTES

1 North American Electric Reliability Corporation (NERC). “Definition of “Adequate Level of Reliability” (2007) available online at http://www.nerc.com/docs/pc/Definition-of-ALR-approved-at- Dec-07-OC-PC-mtgs.pdf. 2 Energy Information Administration (EIA). “Electric Power Monthly.” (25 Apr. 2017) available online at https://www.eia.gov/electricity/monthly/epm_table_grapher.cfm?t=epmt_1_1. Figures used here are “Total Generation at Utility Scale Facilities” only and do not account for small scale solar PV, data for which is only available since 2014. 3EIA. “Electric Power Monthly.” (25 Apr. 2017) available online at https://www.eia.gov/electricity/monthly/epm_table_grapher.cfm?t=epmt_1_1. See also Laura Martin, “Implications of low electricity demand growth,” Energy Information Administration, April 30, 2014. http://www.eia.gov/forecasts/archive/aeo14/ elec_demand.cfm 4 Federal Energy Regulatory Commission (FERC). “Energy Infrastructure Update.” (2012 – 2017) available online at https://www.ferc.gov/legal/staff-reports.asp. 5 “Increased competition from cheap natural gas is responsible for 49 percent of the decline in domestic US coal consumption. Lower-than-expected demand is responsible for 26 percent, and the growth in renewable energy is responsible for 18 percent. Environmental regulations have played a role in the switch from coal to natural gas and renewables in US electricity supply by accelerating coal plant retirements, but were a significantly smaller factor...” Houser, Trevor; Bordoff, Jason; and Marsters, Peter. “Can Coal Make a Comeback?” Columbia University. (Apr. 2017) available online at http://energypolicy.columbia.edu/sites/default/files/energy/Center%20on%20Global%20Energy%20Policy%20 Can%20Coal%20Make%20a%20Comeback%20April%202017.pdf. 6 EIA. “Henry Hub Natural Gas Spot Price.” Available online at https://www.eia.gov/dnav/ng/hist/rngwhhdA.htm. 7 https://www.snl.com/web/client?auth=inherit#news/article?id=36007486&KeyProductLinkType=0&cdid=A- 36007486-11568 8 Rorke, Catrina. “Where Have all the Nuclear Plants Gone?” The R Street Institute. R Street Policy Study No. 70. (Oct. 2016) available online at http://www.rstreet.org/wp- content/uploads/2016/10/70.pdf. 9 Harelson, Scott. “Owners Vote on Navajo Coal Plant Lease.” Salt River Project. (13 Feb. 2017) available online at http://www.srpnet.com/newsroom/releases/021317.aspx. 10Potomac Economics. “2015 State of the Market Report for the MISO Electricity Markets.” (June 2016) available online at https://www.misoenergy.org/Library/Repository/Report/IMM/2015%20State%20of%20the%20Market%20An alytical%20Appendix.pdf.

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11 American Council for an Energy-Efficient Economy (ACEEE). “Why is Electricity Use No Longer Growing?.” (Feb. 2014) available online at http://aceee.org/files/pdf/white-paper/low-electricity-use.pdf 12 Retail electricity sales from the EIA’s Electricity Data Browser: http://www.eia.gov/electricity/data/browser/; GDP data from the Department of Commerce, Bureau of Economic Analysis, Table 1.1.6. Real Gross Domestic Product, Chained Dollars. 13 https://www.eia.gov/conference/2014/pdf/presentations/sotkiewicz.pdf 14 PJM Interconnection. “Demand Response” (2015) available online at http://www.pjm.com/~/media/about-pjm/newsroom/fact-sheets/demand-response-fact-sheet.ashx; and Elisa Wood. “Energy Efficiency Up; Demand Response Down in PJM Capacity Auction.” (May 25, 2014) available online at http://energyefficiencymarkets.com/energy-efficiency-demand-response-pjm-capacity-auction/. 15 ISO-NE, Energy Efficiency Forecast Report for 2018-2030 (Aug. 2014), available at http://iso- ne.com/committees/planning/energy-efficiency-forecast; and ISO-NE, 2014 Regional System Plan (Nov. 2014), available at http://iso-ne.com/system-planning/system-plans-studies/rsp. 16 https://emp.lbl.gov/sites/all/files/lbnl-6300e-ppt.pdf 17 Lazard. “Lazard’s Levelized Cost of Energy Analysis—Version 10.0.” (Dec. 2016) available online at https://www.lazard.com/perspective/levelized-cost-of-energy-analysis-100/. 18 https://energy.gov/savings/renewable-generation-requirement 19 RTO Insider. “SPP Eyes 75% Wind Penetration Levels.” (20 Feb. 2017) available online at https://www.rtoinsider.com/spp-wind-penetration-39074/. 20 http://constitution.org/uslaw/sal/038_statutes_at_large.pdf 21 Department of Energy (DOE) “Shale Research and Development.” Available online at https://energy.gov/fe/science-innovation/oil-gas-research/shale-gas-rd. 22 Department of the Treasury. “United States ‒ Progress Report on Fossil Fuel Subsidies.” (2015) available online at https://www.treasury.gov/open/Documents/USA%20FFSR%20progress%20report%20to%20G20%20 2014%20Final.pdf 23 http://thehill.com/policy/energy-environment/297102-panel-votes-to-extend-nuclear-power-tax-credit 24 https://www.nrc.gov/reading-rm/doc-collections/fact-sheets/nuclear-insurance.pdf 25 http://news.energysage.com/solar-energy-vs-fossil-fuels/ 26 DOE. “2017 U.S. Energy Employment Report (USEER).” (Jan. 2017) available online at https://energy.gov/sites/prod/files/2017/01/f34/2017%20US%20Energy%20and%20Jobs%20Report_0.pdf. 27 ERCOT. "Historical RTM Load Zone and Hub Prices.” (2017) available online at http://mis.ercot.com/misapp/GetReports.do?reportTypeId=13061&reportTitle=Historical%20RTM%20Load%2 0Zone%20and%20Hub%20Prices&showHTMLView=&mimicKey. See also http://windcoalition.org/negative- prices-still-rare-mostly-caused-energy-sources/.

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28 Monitoring Analytics, LLC. “State of the Market Report for PJM.” Independent Market Monitor for PJM. (9 Mar. 2017) available online at http://www.monitoringanalytics.com/reports/PJM_State_of_the_Market/2016/2016-som-pjm-volume2.pdf. 29 See, for example, Massachusetts Institute of Technology (MIT). “The Future of Solar Energy: an Interdisciplinary MIT Study.” (2015) available online at http://energy.mit.edu/wp- content/uploads/2015/05/MITEI-The-Future-of-Solar-Energy.pdf. 30 Interstate Renewable Energy Council (IREC). “Charging Ahead: An Energy Storage Guide for State Policymakers.” (19 Apr. 2017) available online at http://www.irecusa.org/2017/04/irec-releases-energy- storage-guide-for-policymakers/. 31 The Brattle Group. “Integrating Renewable Energy into the electricity Grid: Case Studies Showing How System Operators are Maintaining Reliability.” (Jun. 2015) available online at http://info.aee.net/integrating-renewable-energy-into-the-electricity-grid. 32 ERCOT. “ERCOT Concept Paper: Future Ancillary Services in ERCOT.” Draft Version 1.1. (2013) available online at http://www.ercot.com/content/news/presentations/2014/ERCOT_AS_Concept_Paper_Version_1.1_as_of_11- 01-13_1445_black.pdf. See also The Brattle Group. “Cost-Benefit Analysis of ERCOT’s Future Ancillary Services (FAS) Proposal.” (21 Dec. 2015) available online at http://www.ercot.com/content/wcm/key_documents_lists/30517/667NPRR_12a_Cost_Benefit_Analysis_1221 15.pdf. 33 ERCOT, “Final Report: January 6 2014 EEA.” (7 Mar. 2014) available online at http://www.ercot.com/content/meetings/ros/keydocs/2014/0306/ROS_Jan_6_EEA_Report.pdf. 34 NREL. “Renewable Electricity Futures Study.” (2012) available online at http://www.nrel.gov/analysis/re_futures/. 35 Baldwin, Samuel F., Hand, M. Maureen, Mai, Trieu and Mulcahy, David. “Envisioning a Renewable Electricity Future for the Untied States.” Energy Vol. 65. (1 Feb. 2014) available online at http://www.sciencedirect.com/science/article/pii/S0360544213009912. 36 Brinkman, Gregory. “Renewable Electricity Futures: Operational Analysis of the Western Interconnection at Very High Renewable Penetrations.” NREL. (Sept. 2015) available online at http://www.nrel.gov/docs/fy15osti/64467.pdf. 37 Cochran, Jaquelin, Mai, Trieu, and Bazilian, Morgan. “Meta-analysis of High Penetration of Renewable Energy Scenarios.” Renewable and Sustainable Energy Reviews Vol. 29. (Jan. 2014) available online at http://www.sciencedirect.com/science/article/pii/S1364032113006291. 38 http://ge-energy.postclickmarketing.com/RenewableIntegration/renewable-overview-558- 10116.html 39 https://energy.gov/sites/prod/files/2016/08/f33/Shucheng%20Liu.pdf

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40 NERC. “Polar Vortex Review.” (Sept. 2014) available online at http://www.nerc.com/pa/rrm/January%202014%20Polar%20Vortex%20Review/Polar_Vortex_Review_29_Sep t_2014_Final.pdf. 41 PJM Interconnection. “Response to Consumer Reports on 2014 Winter Pricing.” (19 Sept. 2014) available online at http://www.pjm.com/~/media/documents/reports/20140919-pjm-response-to- consumer-reports-on-2014-winter-pricing.ashx. 42 For example, Solana Generating Station, a 288 MW concentrating solar facility in Arizona, uses onsite thermal storage to supply power 24 hours a day. Arizona Public Service. “News Release: Solana Begins Serving Customers; Providing Solar Power at Night.” (9 Oct. 2013) available online at http://www.azenergyfuture.com/blog/october-2013/news-release-solana-begins-serving-customers-pro/. 43 Lawrence Berkley National Laboratory (LBNL). “Reliability of the U.S. Electricity System: Recent Trends and Current Issues.” (Aug. 2001) available online at http://emp.lbl.gov/sites/all/files/REPORT%20lbnl%20-%2047043.pdf. 44 National Renewable Energy Laboratory (NREL). “Effective Ancillary Services Market Designs on High Wind Power Penetration Systems.” (Dec. 2011) available online at at http://www.nrel.gov/docs/fy12osti/53514.pdf. 45 NREL. “Advanced Inverter Technology for High Penetration Levels of PV Generation in Distribution Systems.” (Mar. 2014) available online at http://www.nrel.gov/docs/fy14osti/60737.pdf. 46 Daniel F. Opila, Abdi M. Zeynu, and Ian A. Hiskens. “Wind Farm Reactive Support and Voltage Control.” (2010) available online at http://web.eecs.umich.edu/~hiskens/publications/05563248.pdf. 47 NREL. “Active Power Controls from Wind Power: Bridging the Gaps” (Jan. 2014) available online at http://www.nrel.gov/docs/fy14osti/60574.pdf. 48 CAISO. “Using Renewables to Operate a Low-Carbon Grid: Demonstration of Advanced Reliability Services from a Utility-Scale Solar PV Planet.” (2017) available online at https://www.caiso.com/Documents/UsingRenewablesToOperateLow-CarbonGrid.pdf.

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